Abstract Background The combination of sarcopenia and obesity has been associated with physical impairment in older people. However, previous research has relied on assessments of lean mass as a surrogate for muscle mass. We postulate that inaccurate measures of muscle mass may have obscured the role of obesity in sarcopenia and related outcomes. Our aim was to clarify the interactions of muscle and fat with physical performance and adverse outcomes using an accurate measure of muscle mass. Methods In a longitudinal study of >1,300 older men (mean age 84 years), we compared a direct measurement of muscle mass (D3 creatine dilution; D3Cr) with an approximation of muscle mass (appendicular lean mass [ALM] by dual-energy x-ray absorptiometry [DXA]) and their associations with measures of physical performance (gait speed, chair stand time) and adverse outcomes (incident injurious falls and mobility problems). We measured percent fat mass by DXA. Results Low D3Cr muscle mass was strongly associated with decreased performance and increased risk of adverse outcomes. Increased fat mass had little association after accounting for D3Cr muscle mass. In contrast, DXA ALM was minimally associated with performance or adverse outcomes, and fatness remained associated with both outcomes after accounting for DXA ALM. Conclusions When an accurate assessment of muscle mass (rather than lean mass) is used, reduced muscle mass is highly associated with important outcomes and the negative effects of adiposity are minimal, suggesting that obesity has little relevance for the understanding of important adverse health outcomes of sarcopenia in older men.